Daily insights on issues that matter

04/04/2009

Angela Merkel and Nicolas Sarkozy came out today after the Strasbourg-Khel summit to explain that "we (NATO) are there to defend values... we are not ready to negociate with our values." This comes a few days after President Obama indicated that the core mission of NATO in Afghanistan was to fight Al Qaeda, and make sure that the country could no go back to being a safe haven for international terrorism. Basically that ment that the Alliance was in Afghanistan to protect its own safety and make sure that there would never be another 9/11. The issue is that stabilizing Afghanistan and uprooting international terrorism does not necessarily mean creating a "Jeffersonian democracy" there.

It certainly doesn't automatically mean protecting women's rights. I acknowledge this is said bluntly (and that Obama has evoked the issue of the education of women) but my point is that you have to decide what your objective is and state it clearly. Are we in Afghanistan to defend values, which is perfectly acceptable but more ambitious and more difficult to achieve. Or are we there to defeat Al Qaeda which means military action combined with some kind of political settlement that would bring stability to the country and some kind of negociation with people that do not share at all our values.

04/03/2009

Thank you Uruguay. OECD's Secretary General has indicated today that he had received a letter from Uruguay's Finance Minister, Alvaro García, stating that Montevideo had adopted a legislation applying the norms of the Organization on transparency and information exchanges.

I was so desappointed at the fact that a progressive government, that of Tabaré Vazquez, had taken no measures to limit the excesses of the long-standing tradition in his country to serve as a hub for regional money laundering. Everything happens in due time apparently.

Paul Krugman writes today an interesting piece on trap the Chinese put themselves in. Buying huge amounts of dollars in the last decade, they are now more or less obliged to maintain the dollar at a respectable level. In the event they wouldn't, they would end up having to cope with huge capital losses. For now, this situation benefits the United States. With the considerable amount of public spending the country has decided to mobilize, it needs foreigners (basically China, because the others have no surpluses anymore) to keep buying Treasury Bonds. Which means they buy dollars and thus keep producing the global imbalancies everybody now condemns.

So we need the global imbalancies, at least for a while. It is only with strong growth that the US will be able to deal with the vast amount of money it has been creating without seeing the dollar plunge. At the same time, it will have to reduce its dependency on foreign savings, which basically means it will have to save itself. That leads us always to the same core problem : the US has to stop consuming more than it can. Suprimes, global imabancies, bubbles and crashes have one root cause. The US consumer has to behave more rationnaly. Spent what it can and save some money.

The French information website rue89 has obtained a copy of the transcript of the conversation between the former Société générale trader, Jérôme Kerviel, and the judges in charge of the case, Renaud Van Ruymbeke et Françoise Desset.

I skip the technical details of the way a single trader was able to lure one of France's most important banks, who had specialise in derivatives... Apparently, Jérôme Kerviel was indeed lying about its activities. He had masked his losses for several months, its gains (that ironically were linked to the suprime crisis) from september 2007 to january 2008 and was finally caught when he passed suspicious orders with the Deutsche Bank that the back office decided to check.

Appart from the flaws in internal control procedures of Société Générale, I am more interested in the motives of the trader. One of his former bosses remember him asking at the beginning of 2007 how he could get the 500,000 euros bonus he had missed for 2006. He remembers Kerviel asking if earning 50 million euros would be enough. Why would a single trader create 50 million euros of "wealth" (if I may say) out of sole speculation. Why would he be authorized to earn as much as 500,000 euros in bonus only ? You have to regulate financial markets. Nobody speaks about it anymore but the most efficient way to do so is to set in force a Tobin tax (small enough so that it would not harm "real" financial transfers but still enough to discourage very short term speculation). The other point is that you have to regulate the bonuses... That's what they say. I have an other idea. You tax the very rich at a rate that will make it useless for them to earn such enormous amounts of money. Krugman reminds us in Conscience of a Liberal that the marginal tax rate on incomes in the US in the 50's was over 90 %. There was a huge middle class and lasting economic growth...

The Labor Department reports today that the unemployment rate has jumped to 8,5 %. Unemployment has increased by 694,000. The US have now an umployment rate much higher than many European countries. Who would have guessed ?

Matthew Yglesias gives an interesting interpretation of the fgures and explains why even in the most optimistic scenario, unemployment should not start decreasing before about two years. The pace at which unemployment is increasing is striking... I can't agree more. The details of the report are indeed impressing. The fact that the retail sector keeps on loosing a huge amount of jobs (48,000 this month) is worrisome. What preoccupies me is that retail should be the first sector to recover. Why ? Because people cannot stop spending forever. They have to eat. They have to buy clothes. At some point they will have to buy some durable goods for the house.

Construction will be the last sector to recover. But retail... as long as it doesn't get better in that sector, I don't see any reason to be optimistic.

The Washington Post reports that France decided to accept a detainee held at the Guantanamo military base. This is not totally accurate however. France, like many other countries has already accepted that many of its nationals held at Guantanamo come back to France. Five of them, by the way were released after the "Court of Appeal" of Paris broke the decision of the first degree "Correctional Tribunal" of Paris that had sentenced them to one year.

In this specific case, press reports indicate that France will accept an Algerian citizen "because there are historical links between France and Algeria". Whatever you think of the argument, it is good news to see European countries helping the US close the base they have so often condemned because of the legal black hole it had created.

Two Algerians in Guantanamo are "releasable". Lakhdar Boumediene, 42 and Saber Lahmar, 39. At the time of their arrest in Bosnia, they were suspected of plotting an attack against the US Embassy in Sarajevo. They have been cleared since then.